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Now you can learn how to apply our ATR (Average True Range) strategies to markets other than the E-mini S&P. We use the ATR to determine profit targets, stop losses, and gauge volatility in many of our trading methods. The ATR is usually bundled with most professional trading platforms. As a bit of background, we set the ATR Period value to 4 to set the calculation to be based on the last four bars. This provides a clearer picture of what the market can realistically achieve. In any new, unfamiliar market, you can manually determine the ATR of the last four bars to help guide your trading.
Each market has a different measurement for price. This changes how we interpret the ATR values. You might be used to the ATR on the E-mini where each tick is worth .25. A tick is the smallest possible movement up or down. With the E-mini, John Paul recommends rounding down to the nearest whole tick. For example, an ATR at .824 would be considered .75 (three ticks) when calculating the profit target and stop loss.
In this video, John Paul reviews the Russell (TF), Dow Futures (YM), 30 Year U.S. Treasury Bonds (ZB), and 10 Year U.S. Treasury Notes (ZN). Pay close attention because the calculations will slightly differ for each market. Also, remember to consider how the actual dollar cost of each tick and market behavior will inherently differ with each market.
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In this video, John Paul takes a moment from one of the live classes to take a live trade. It was a short E-mini trade on August 13, 2014 at around 11:50 a.m. with an entry price of 1944.00. The profit target was one point at 1943.00. The pivot stop was two ticks above the pivot (not the entry) at 1945.75. If the profit target was touched but not filled, John Paul would have moved the stop loss to allow for a break-even trade. When starting off with any of our methods, it’s important to paper trade until you feel comfortable, then move on to one contract and see how well you do in real markets. Practice goes a long way. The Stair Step method is also discussed lightly. When fully applied, this strategy will help you identify and manage trades when price is trending in an upward or downward zigzag pattern. On such days, it can be difficult to determine if price has just become stagnant, within a range or if it’s expected to keep breaking new highs or lows. To learn more about the Stair Step and the method John Paul used in this live trade, click the Power Price Action link above.
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Here’s a recording of the webinar conducted on August 15, 2014.
• Atlas Line plotting live
• What causes the Atlas Line’s signals to plot
• How the Atlas Line can provide an overall direction or bias (long or short)
• How the BarTimer is used to time entries
• Identifying breakouts using week-based charts
• How to handle breakouts to reduce risk and identify entries
• Behaviors of most traders vs price action
• Trading the news for recent days
• Applying the ABC for recent days
• A look at the TF, YM, 6A, and 6E charts
• Best times of the day to trade
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For August 12, 2014 on the E-mini (ES) market, the Trade Scalper software produced a Short signal on 1930.50 at about 10:47 a.m. Note the Trade Scalper uses 1-min charts, so each candle represents one minute. Markets love to test where they’ve previously been. This trade uses a three tick profit target with a six tick stop. John Paul keep an eye on the ATR to make sure the market can produce three ticks. Price first tags the profit target and eventually passes through it. A second trade appears at 10:49 a.m. with the 1930 Short signal. There’s enough volatility for another three ticks. When to take two or three ticks of profit target? If the ATR is above .5 points go for two ticks, if above one 1 point, go for 3 ticks. Continue in the video and you’ll see this Short trade become profitable as well as another Short at 11:02 a.m. A Long trade at 11:32 a.m. also hits the profit target.
With purchase of the Trade Scalper, you fully learn the underlying method in order to trade without the signals. It can be used for any fast-moving market with 1-min charts. In addition, our Mentorship Program that begins on September 4, 2014 will cover this method and every other through eight weeks of live trading with John Paul. Click here to find out more about Mentorship.
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Here’s an update to last week’s video where John Paul said to watch out for a potential E-mini breakout. There’s been a lot of talk about a forthcoming reversal in the market. Load up a 1-week chart in your platform of choice and look for the large red candle for the first week of August. Based on this weekly movement, many institutional traders, trading advisers and individual traders likely went short. The following week, the market went down a bit more, came back up and closed as a doji candle. There was no confirmation whether the market wants to go higher or lower. We’ve started a new week here on August 15, so the currently plotting bullish candle may be a sign that the market will go up and test the most recent “high area” of 1978. The market may turn around on a dime and drop later today, next week, etc., but watch what happens if price hits the 1978 level.
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The Trade Scalper software for NinjaTrader will plot entry signals on your NinjaTrader charts. As you can see, two entry signals were already plotted for this August 5, 2014 trading day on the E-mini S&P 500: a Short at 1925 and a Long at 1928.25. Small triangles accompany the entry price to help identify the opportunity. Note that when you purchase the Trade Scalper, you will be able to see its horizontal and vertical lines that further help guide your trading by letting you know when an entry is about to take place.
The Trade Scalper uses a 1-min chart and can work with nearly any type of futures or currency market. The strategy is completely taught in it’s entirety. It’s completely mechanical and objective. No conventional indicators are used. When scalping the markets, you’re not looking for big profits. Look for two to three ticks each time, for a limited amount of time. The Average True Range (ATR) guides the profit target. In this case, three ticks is the goal. The stop is in place to keep him in the trade because as you know, the market can easily change direction, plot against you, then change its mind to your favor. With 11 contracts and the three tick profit target, a $412.50 profit is made within a few minutes. Within the ideal trading time of 9:30 a.m. to noon, US/Eastern, the Trade Scalper can produce over 10 trades. You might not take each one of them. The goal is to minimize and maximize reward.
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John Paul takes a look at a weekly E-mini chart, showing October of 2012 to the current week. For the last two years, the market has shown a bullish trend. Is a reversal now on the way? John Paul does not have a crystal ball. Instead, he offers solid advice: beware of false breakouts. False breakouts are market activity that lure traders in one direction, only to reverse against their trades. It seems as though the E-mini produces a false breakout condition every two to three months. For the week of August 1, 2014, the chart shows a large, red candle, indicating a false breakout could be occurring. If this is indeed a false breakout, watch for the market to test the previous high. It may be too early to consider this the long-term bearish trend traders have been expecting.
A new Group Private Mentorship class begins September 4, 2014. Eight weeks of live training with John Paul will teach you everything you need to know to successfully trade futures and currencies. All courses and software are included with lifetime licenses. This new session has classes twice each week.
We expect this new session to fill up quickly. It’s a good idea to reserve your seat as soon as possible.
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Remember, group training includes:
• Eight weeks of live training with DTTW founder John Paul
• Each training session is recorded for future playback reference
• All courses and software with lifetime licenses and digital books
• In total, 11 unique methods to trade price action are taught – unlike anything you’ve traded before
• Training goes above and beyond the written material
• Look at each day’s activity and ask questions to improve your understanding with expert insight
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On July 30, 2014, the Atlas Line produced a short trade around 10:00 a.m. US/Eastern with an entry price of 1967.25. Many Pullback and Strength trades occurred, which provided additional opportunities to the short side.
In the July 31 portion, you can see how a typical E-mini morning session begins while using the Atlas Line At around 10:00 a.m. US/Eastern, a second consecutive bar closed below the Atlas Line, generating a Short signal at 1950. Using NinjaTrader’s ATM Strategy area, John Paul defines the profit target and stop loss before the trade is placed. The profit target is always based on current market conditions. In this case, the ATR (with a Period setting of 4) shows a value of 3.4, which is rounded down to the nearest whole tick value, being 3.25 (remember that the E-mini works in .25 tick increments). This is a big trade – 3.25 points. The three stop strategies he uses work to minimize risk. Fortunately, the profit target was quickly reached. Two Strength trade signals appeared, which provided another entry. John Paul was happy with the $1,950 in profit trading 12 contracts, so he opted not to continue further.
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The Atlas Line consists of the plotting line, Dbl Bar Long and Dbl Bar Short signals, and any small S (Strength Trade) and P (Pullback Trade) marks you see on the chart. These indications are plotted automatically. All you have to do to configure the Atlas Line is supply the market open time and the signals are then generated.
On July 17, 2014, two consecutive bars close above the plotting Atlas Line to generate a Long (or buy) signal at 1973.75. Notice the Atlas Line plotting as a dashed, pink line behind the large green candle. John Paul places a limit order at the closing price of the second bar above the Atlas Line, which is the entry price of 1973.75. He advises never to chase the market for a higher entry, as that will lead to smaller profits and the market possibly turning against you. The order is then filled. Notice the stop loss is rather large – this is a catastrophic stop, which acts as a safety net in case price unexpectedly decides to take off against the anticipated market direction. In most cases, this catastrophic stop is never hit – if the profit target is not hit, one of the lesser stop losses is usually hit, such as the prove-it stop, time-based stop, or pivot-stop. For all Atlas Line trades, the ATR (Average True Range) is used to calculate the profit target. The ATR provides a realistic value of volatility and what can be achieved in terms of potential profit. As shown, this first trade is good for over 1.5 points of profit. A short trade was produced about an hour later as a result of two consecutive closing bars below the Atlas Line. The signal as generated at 1968. This would have been an excellent trade.